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TRANSCRIPT
AVIATIONBUSINESS
ISSUE 2
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Insights: Aviation is produced by Smart Currency Business, part of Smart Currency Exchange Ltd. Authorised by the Financial Conduct Authority under the Payment Services Regulations 2009 (FRN 504509) for the provision of payment services. Registered in England No. 5282305. © Copyright 2014 Smart Currency Business.
CEOCharles PurdyDirectorCarl HastyAviation Business SpecialistAlex BennettAviation Business ConsultantArchie ReedSm
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EditorYi Ling HuangDesignerTom CocksMedia EnquiriesRachael KinsellaEd
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Christopher Whiteside, Dustin Dryden, Gavin Hill, Grahame Jones, Steve Varsano, Jane Stanbury, Mark Church, Jeffrey Emmenis, Alex BennettC
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Article images courtesy of AJW, Hangar8, FD Solutions, Farnborough International Airshow, The Jet Business, Emerald Media, Aon UK & Vertis.
020 3773 6135insights@smartcurrencybusiness.comsmartcurrencybusiness.comSmart Currency Business, 1 Lyric Square, London W6 0NB
Smart Currency Business@SmartCBusinessC
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04Taking growth to new heightsAJW’s Christopher Whiteside
on investing in business growth
06Building a global
aviation firmHangar8’s Dustin Dryden on international growth
08Before signing a sales contract
Points to note from Gavin Hill of FD Solutions
10Farnborough International
AirshowBehind the scenes
with Grahame Jones
14The Game Changer
Steve Varsano on what makes The Jet Business unique
16Business currency strategies
Alex Bennett on minimising costs and mitigating risks
18African business
aviationJane Stanbury on
opportunities in Africa
22Architects of charter
Jeffrey Emmenis on the needs of private jet passengers
20Staying safeAon UK’s Mark Church on aviation insurance
The aviationindustry isflying high
...and not just in the literal sense. This issue of Insights: Aviation Business features articles by and interviews with founders and owners of aviation businesses that have achieved outstanding international reach.
AJW’s Christopher Whiteside and Hangar8’s Dustin Dryden tell us how their businesses address the issue of growth directly, sharing stories of how they have brought their respective companies to new heights. Meanwhile, Steve Varsano explains how being a game changer helped him to find a niche in a competitive market, and Jeffrey Emmenis from Vertis discusses trends in executive jet travel.
We also shine the spotlight on other important aspects of the industry – like finance, insurance and expansion into new markets – which contribute to a business’s profitability and growth.
There is a strong sense of community within aviation and aerospace, as is evident at the Farnborough International Airshow (FIA), held every two years. In this issue, we are privileged to have a glimpse behind the scenes of this bustling event, courtesy of Grahame Jones from the FIA.
This publication is packed airtight with articles by leading entrepreneurs and thought leaders in the aviation sector. Whether you’re a seasoned professional within the industry or just starting out, we hope that this issue of Insights: Aviation Business will have something for you.
I am always happy to hear from readers and answer any questions you might have.
Happy reading,
Alex Bennett, Aviation Business [email protected]
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Takinggrowthto new heights
What is your main vision for AJW?
We are concentrating internally on building a billion-dollar brand experience for our customers, and growing the business to achieve that financial milestone. At the present time, our trading companies turn over about $600 million dollars, and we are focusing on getting those revenues up to around $1 billion by 2017. It is likely that we will exceed that target.
Is this part of a long-term plan? Do you work around longer-term strategies?
AJW is a privately-owned company which I run according to three- to five-year plans. We’re always moving forwards, so the decisions that I make now will have an ongoing effect on the business.
We’ve just completed our forecast for the next 12 months, but we didn’t stop there. The forecast also extends to the next 24 and 36 months. It starts in a granular form for the short to medium-term, then takes on a more flexible format for the latter two years.
This is in complete contrast to the way public companies – or American companies – do it. Most of them don’t even make business plans year by year, but quarterly. I think it’s important to have short, medium and long-term perspectives on business plans.
What are AJW’s main strategies for growth?
Firstly, we have been developing our engine and repair divisions. Our engine business is based near Cardiff in Wales. AJW Technique – our component maintenance, repair and overhaul facility (MRO) – is in Montreal. The state-of-the-art facility occupies around 160,000 sq. ft., and it is extremely sophisticated.
Established in 1932, AJW is recognised globally today as the leading independent provider of integrated air-craft support services for Airbus and Boeing aircraft and engines.
Christopher Whiteside, the Company’s President, discusses how he is investing in business growth.
Then there’s what we call ‘brand building’. There is a degree of organic growth involved, but in order to continue to maintain our status as the number one independent brand in our sector of the market, we need to actively expand our efforts. We’re always harnessing the power of our brand and the reputation of our world-class facilities to promote AJW to its fullest potential.
Our growth levels at this stage transcend percentages. We used to grow at about 25-40% a year, but when your turnover exceeds half a billion dollars, that becomes less possible. Instead, we’re concentrating on the cornerstones for our business expansion programme, to ensure that we provide clients with the best possible products and services. We’re not expanding our business for the sake of vanity, we’re expanding it for the sake of sanity.
How do you measure this growth?
One of the ways that we measure growth is by the success of our vertical integration activity. Our repair division is a prime example. Our main act of diversification over the past few years has been to acquire our own MRO and we bought the assets of the Air Canada component maintenance facility based in Montreal. We started operations last year and already employ around 150 skilled technicians. The facility will continue to grow as we ramp up additional capabilities.
We used to outsource all of our component repair work, but having this facility allows us to manage a significant amount of the work in-house. It lets us streamline our processes for maximum efficiency, by controlling the quality of workmanship and securing the best prices for piece parts.
Having our own facility has also allowed us to extend the AJW brand name further, with our own MRO brand, AJW Technique, equipment and contracts – even our own boxes, tape and warranty stickers. I should note that this is in accordance with our policy of working with original equipment manufacturers, not in competition with them. We are establishing unique partnerships within the aviation industry that have not been seen before.
What are your biggest markets, geographically speaking?
We have close to 1,000 customers in 115 countries, so we have a wide reach. Our clients include people like Steven Spielberg, who has a private jet – a Boeing Business Jet BBJ 737. They also range from a maintenance facility in China, the US and French Governments and the UK Tanker force; to airlines, maintenance companies, leasing companies, and banks who have assets that they want professionally managed.
We are concentrating on our sector of the market, but we are also looking into diversifications in the form of commercial aircraft platforms, possibly the Chinese and Russian variants.
How have you found dealing with currency costs?
The dollar is the international benchmark for the aviation industry. Even though our headquarters are based in the United Kingdom, where we have our overheads, our income is primarily dollar-based. This means that we have to rely on strategies to optimise our currency conversions back to sterling. What we save from this is then chanelled back into growing the business.
Christopher Whiteside is the President of the AJW Group. Under his visionary leadership AJW has built a worldwide network of operational centres and inventory hubs, as well as its own MRO facility. Christopher is also committed to developing engineering excellence through various aviation MRO industry educational programmes.
ajw-group.com
“Our growth levels at this stage transcend percentages... We’re not expanding our business for the sake of vanity, we’re expanding it for the sake of sanity.”
| 76 |
Founded in 2002, Hangar8 plc has been steadily growing its capabilities over the past twelve years to offer its clients a first class service with a global footprint. Today, Hangar8 manages more than 50 business aircraft with a value of over $1.5 billion, ranging from the light cabin Citation CJ1 Jet to Bombardier Globals, Gulfstream 550 and VIP airliners like the Boeing Business Jet. Hangar8 is responsible for more than 7,000 flights a year for a client base spanning the world.
The Hangar8 story
I founded Hangar8 Aviation twelve years ago in the eponymous hangar at Oxford Kidlington Airport. I spent much of my early career as a pilot, before making the transition from flying to selling planes. However, I soon realised that many buyers were unaware of what to do with their newly purchased plane,
Hangar8 CEO Dustin Dryden shares with us how the firm has grown to the international business that it is today.
needing advice on operational costs ranging from fuel and maintenance to hangar and landing fees.
It therefore made sense to set up a private aircraft management company that would take care of all these details, enabling our customers to focus on exactly what they bought their aircraft to do: fly.
Private aviation has a glamourous reputation, but business air travel is a vital tool for executives, providing a necessary access route for corporates and entrepreneurs around the globe.
Hangar8 appreciates that the most exciting business opportunities lie away from major cities, and we have structured our fleet to enable our customers to get to those hard-to-reach places that commercial airlines can’t get to.
Dustin is a qualified pilot and has been flying for 19 years on both fixed-wing and rotary aircraft. He co-founded Hangar8 in 2002 and has been Chief Executive Officer since its inception, being instrumental in its growth to date. Dustin has over 15 years’ experience in aviation sales and jet management, having represented several of the major aircraft manufacturers in the global marketplace.
hangar8.com
Building a global
aviation firm
While conventional air travel may be able to transport an individual to any country in the world, we pride ourselves on taking our customers to any airstrip in the world – saving precious time spent on connection flights and long car journeys to their final destination.
Hangar8 has spent the past 12 years building what we believe is an unrivalled reputation for first-class service for our global audience. Due to the high costs involved in setting up such an operation, competition is limited. Indeed, even if a company received the necessary £5 million investment in building infrastructure, they would still be left with only one jet, no history and no customers. Building a reputation and trust is hugely important in business aviation, which is why we set out to put our customers at the heart of our business model from day one.
In order to provide the most cost-effective service for our customers, we don’t own any of our aircraft fleet, but instead manage them for clients and lease them out to customers. Not only does this ensure maximum financial returns for owners of business jets, it also opens the market to individuals who cannot afford to run their own jet but still require access to the best aircraft in the world.
This also ensures that they are able to use the most appropriate aircraft for the journey they intend to take, whether it be a Hawker 900XP for short inter-city travel, or a Boeing Business Jet for continental trips.
Global footprint
Our focus on expanding our global footprint is why we have supplemented our UK bases with further sites across Europe, the Middle East and Africa. These include Almaty, Kiev, Dubai, Krasnodar, Mumbai, Abuja, Lagos and Moscow, opening the door to individuals from some of the world’s burgeoning economic growth areas, as well as providing peerless engineering expertise for our aircraft in every corner of EMEA, effectively making the entire region a Hangar8 base.
Naturally, this expansion has required investment and we have raised this through the financial markets. Once Hangar8 had established itself as a major player in the aviation management and charter industry, the next logical step for the company was to float on the Alternative Investment Market (AIM).
When Hangar8 launched on AIM in late 2010, it was trading at 160p per share. Now, thanks to the shared vision and commitment of our 300 staff, the company ended August 2014 trading at 273.5p per share – an increase of 71%.
In recent years, our focus for growth has shifted towards larger, longer-range aircraft to ensure that our supply can match the growing demand for intercontinental air travel. Indeed, earlier this year we took delivery of four state-of-the-art long-range aircraft.
Our aero medical operations are also growing in popularity, with our African-based Hangar8 Aero-Medical business seeing revenues increase by more than 300% since 2012. Furthermore, JetClub, our elite aircraft management and charter firm based at Farnborough Airport, is building on its reputation as one of the most exclusive, reliable and trusted business aircraft operators in the world.
Looking to the future
Having seen Hangar8 grow from a one-man business to one of the world’s leading aviation firms in such a short space of time, I look forward to the coming decade with the same anticipation and excitement as I did back in 2002. I hope to continue growing our company and reputation as the ultimate one- stop shop for jet owners and passengers, whatever their requirements or business goals.
“Business air travel is a vital tool for executives, providing a necessary access route for corporates and entrepreneurs around the globe.”
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Set-up costs
If this is a new product, have you factored in realistic set-up costs and timescales, including those for any new machinery or tooling, inventory and aerospace regulatory approvals? Achieving contractual deadlines for delivery and performance will keep costs under control. No business wants to start a new contract by delivering late or with increased costs. Remember that everything usually takes longer and costs more than you think.
Volumes
Are forecast volumes realistic, based on solid data? How did you factor overhead costs into the profit calculation, given that you have a mixture of fixed and variable costs? If the forecast volumes are lower than expected, do you understand how this impacts your profitability and cash flow? Do you have the contractual right to renegotiate the pricing?
Before yousign that
major newsales
contract...
If you’re about to sign a new sales contract, there are many vital questions that you should ask which could help mitigate financial risk and improve your bottom line. Gavin Hill from FD Solutions runs through the main points.
Congratulations! You’ve just won that new sales contract and are confident it will deliver the profit and cash flow that you expected when you submitted your bid. You understand your commitments and, although you recognised the risks, these were evaluated at an earlier stage. You probably addressed all the following – but before you sign the all-important contract, it’s worth checking.
Capacity
A common barrier to growth is the inability to bring suitable staff on board fast enough. Do you have the capacity to handle any increase in volume? Will you be able to acquire any new machinery and train employees?
Penalties & warranties
As we know, airlines are very sensitive to any supply problems that affect their operations, given the high potential consequential costs involved. Are there penalties in the contract for late delivery, poor quality or documentation errors? You should always seek to exclude consequential damages and limit your liability only to the direct costs of rectifying a failure.
Are the definitions of ‘on time’ delivery clear (for example, including an ‘on dock’ date or factory ‘dock’) and understood by your team?
Consider the potential impact of any warranties you have given. Is the period reasonable given the nature and quality of the product or services being provided?
Escalation clauses
If you are going to sign a long-term contract, escalation clauses may have a major impact on long-term profitability. If you are unable to pass increases in cost on to the customer, then your margins will erode over time. Can you set a cap on the escalation? At a minimum, you should be able to pass on cost increases in raw materials (which are less controllable), and only consider a reasonable cap on labour costs (over which you should have some control). Consider also the driving factors for any labour increases. These are generally linked to some form of labour index: is this the correct index for your business, and how has it performed in the past?
It is still possible to put forward contracts in place with confidence, even if you don’t know exact timing or the scale of orders that might be received.
Indemnity & insurance
Do you fully understand the nature of indemnities in the contract, and do you have insurance to meet the cost of any claims? Claims associated with airline fatalities can run into millions – even billions.
Tax liabilities
Did you exclude liability for any taxes associated with the contract outside of the UK, including future changes in overseas tax legislation, particularly if a trading entity might be deemed to be established for local tax purposes?
Legal jurisdiction
What is the legal jurisdiction and applicable law in the event of a dispute? Too often ignored, not addressing these matters can result in significantly increased legal costs. Though they may be covered by insurance, travelling to another country to attend meetings and court takes up time that could be better spent running your business.
A final note
We all understand that conducting business involves an element of risk taking. Don’t build any more risk in to business already won, by not focusing on the 'details'. By mitigating the risks explained in this article you will increase the potential long-term rewards.
Foreign currency risks
It is likely that your contract pricing is in dollars or euros and you may be sourcing raw materials or services in foreign currencies. As your labour and overhead costs are probably in sterling, you are exposed to potentially significant losses from exchange rate movements. Did you know the average dollar-sterling rate over the past 30 years has been £1/$1.65, yet it has historically reached nearly £1/$1 and £1/$2? The difference in currency costs is staggering.
Have you undertaken a sensitivity analysis to understand the impact on profitability from movements in currency exchange rates? Are you able to accurately forecast foreign currency cash flows and put currency hedging strategies in place? If necessary, do you budget and forecast cash flows to include currency?
Gavin Hill is a Client Finance Director at FD Solutions and head of the firm’s Aerospace and Defence team, where he works with a portfolio of companies on a flexible basis to help them overcome their barriers to growth.
fdsolutions.uk.com
“We all understand that conducting business
involves an element of risk taking. Don’t build
any more risk in to business already won,
by not focusing on the 'details'.”
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TheFarnborough International
Airshow Home to the Farnborough International Airshow (FIA) since 1948, the small town in Hampshire and its aerodrome are steeped in aviation history, from the first powered flight by Samuel Cody in 1908, to the testing site for the Hawker Hurricane. Virtually every major development in aerospace has been linked with the pioneers who have researched on the airfield and in the clusters of laboratories and test centres that lay adjacent to the Farnborough runways.
In all that time, FIA has been the shop window for these aeronautical advances, seeing the UK aerospace sector grow to number one in Europe – second only the US – and contributing £20bn to the UK economy. Today, FIA is considered the must-attend event for the global aerospace industry and boasts over 100,000 trade visitors and 1500 exhibitors, 60% of which have come from overseas. By the close of show this July, orders and commitments for aircraft and engines broke all records in the event’s history, totalling a massive US $201bn.
So why does the industry choose FIA? Quite simply, it’s the meeting place for the aerospace industry. No other event allows visitors and exhibitors the opportunity to meet new and potential business partners, colleagues and existing business customers. Furthermore, it allows the industry to keep up to date with market trends, new products and innovations. In a survey of visitors to the 2012 show, over 80% of those surveyed considered FIA essential to their businesses.
In planning the event, FIA organisers Farnborough International Ltd (FIL) develop a number of features that allow visitors and exhibitors alike even better networking opportunities. From dedicated zones in space, intelligent systems and innovations, to its military and commercial delegations programme, all events are organised to allow exhibitors the opportunity for targeted networking and new business development.
The flying display is naturally another fundamental reason why FIA remains so popular. The airfield sits on a natural amphitheatre and the hospitality chalets are built on its terraces along the runway, allowing optimum viewing of the air display. It’s the perfect venue for mainframe manufacturers to display their latest in military and commercial hardware.
2016 will see the 50th edition of the show – a milestone in the event’s history and evidence of its importance to the aerospace industry.
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While the exhibition is about facilitating business, it is no mean feat putting on an event of the sheer scale of FIA. As part of FIL, the Operations teams work with the Sales and Marketing and Flight Operations teams to create the show, which is considered a standard-bearer in the events industry. Every two years, the operations teams start organising the construction of what is in effect a small town. With over 1500 exhibitors, the majority housed in 100,000sqm of temporary and 10,000sqm of permanent structures, everything from electricity, water supply and internet connectivity to site security, medical assistance and catering are all carefully planned and managed to the smallest detail.
We start any two-year cycle at the end of each show with a series of debrief meetings totalling 130 with our various official contractors and suppliers – we work with over 80 companies and official bodies. From there, we start planning the next show and make any site infrastructure improvements. For example, the last cycle saw new hard standing across the site, installation of permanent CCTV, and upgrades to all amenities of approximately £2m. Most significantly, we also embarked on the first phase of our site development – the construction of the permanent row-A chalet buildings for our exhibitors, with a Cap Ex of £2.8m.
In the January of the show year, the many temporary structures start to be erected – four exhibition halls, a media centre and restaurant hall, over 80 chalet units and some 20 outside exhibits spanning the 100,000sqm site. Our exhibitors’ contractors come on site about a month before the show to commence fit out of chalets and start building their exhibition stands. By the time the exhibitor arrives on site, there is no evidence of the work gone into creating on the event.
To the exhibitor, the operations team is very much the invisible side of the business. However, it’s an integral part of it. Our aim is to make the visitor and exhibitor experience as easy as possible. From way-finding and signage to air conditioning or visitor safety, it’s all down to the operations department to get it right.
Behindthe scenesat FIA
Grahame Jones, Chief Operating Officer for FIL gives a behind-the-scenes view from the Farnborough International Airshow.
farnborough.com
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How did you come up with the concept for an aviation showroom?
This business is a little bizarre because it’s always been done over the telephone. When I first got into the industry thirty years ago, I put on my best suit and walked into an office – everybody else was in T-shirts, shorts and sandals. They never saw their customers. It baffled me how you could sell something for 10, 20 or 50 million dollars and not talk to your customer face-to-face.
In those days, 80% of clients were American, and 20% were from Europe. I left the industry for a private equity firm, and when I returned eight years ago, the landscape had changed drastically. Only 50% of the business is in America, with many new buyers from emerging markets.
It’s difficult to meet clients in Nigeria, Angola, India, China, and other countries with emerging markets for a three hour-meeting, then return to London. I came up with the idea to get clients to come and see me. The showroom is centrally located for clients from these various markets.
What values do you feel are most important for The Jet Business?
I always believe in face-to-face contact with people. This means that we need to be prepared with the right information. If you’re selling via the telephone, you can stall for five seconds while you look up an answer, but when you’ve got a billionaire in the same room asking you questions, you don’t have that luxury. Our clients are smart people. You’ve got one shot at a first impression, and if you don’t perform, you’re history.
This is why we have our app. It takes people through the process of selecting the right airplane for them. We’re very transparent, and we offer a lot of information. We focus on educating clients, by showing them the options available. It’s very easy to value the products that we sell, with the right data.
The GameChanger
Steve Varsano, Founder of The Jet Business, explains what makes The Jet Business a unique high-flier in the aviation business.
that was registered in Switzerland. We sold it to a Chinese company, the inspection was done in Germany, and the lawyers were from the UK on one side, and America on the other.
We’ve got people here who speak Mandarin, Cantonese, Arabic, French, German, Italian, Russian – and many more languages. Even if someone speaks English, if you can speak to them in their native tongue, they’re a lot more comfortable.
How important a role do currencies play in the industry?
Currencies play a big part in this business, even though airplanes are priced in American dollars across the world. For example, when the Indian rupee weakened, people could sell an airplane for less than they paid for it in dollars but were still able to get closer to what they paid for it in their rupee currency, because the airplane was sold in US dollars. There are also benefits when a currency strengthens. For example, a stronger Brazilian real meant planes were easier for clients in Brazil to buy.
Since airplanes are priced in dollars, the clients usually deal with their currencies. If they don’t have a business that’s dollar-denominated, they’ll convert their currencies. We don’t actually get involved in the currency exchange, except with our own operating costs – we sell in dollars, and our expenses are in pounds. We have to deal with that exchange.
What are you most proud of from your journey with The Jet Business so far?
The quality of the people who have been in this showroom, which has been astounding. Nobody knew about the business when we first started – we had a new name, a new team of people, new technology. I have had 5% to 6% of the world’s billionaires in this office in the last two and a half years. We’ve gotten extensive TV, magazine and newspaper coverage.
What are your visions for the business’s future?
I’d love to expand to other locations, like Hong Kong, Dubai and New York. It’s just a question of human resources – we need to find people experienced in the industry, who have local knowledge and connections.
Steve Varsano is the Founder of The Jet Business, the world’s first street-level corporate aircraft showroom. He is currently on the board of XOJET and Virgin Galactic.
thejetbusiness.com
“Our clients are smart people. You’ve got one shot at a first impression, and if you don’t perform, you’re history.”
“When somebody walks in here, they see instantly that this is a different environment.”
Does this transparency influence long-term business relationships?
We really believe in relationships. More and more of our business is done by repeat order. About half of our sales end with the buyer becoming our client later on. We’re very transparent, and once we’ve reached an agreement, we’ll make it easy for everyone involved by speeding the process up.
You don’t like using the word ‘luxury’ to describe what you do...
In our business, we shiver when we hear the word ‘luxury’. We really think that this is a business tool, a time machine – it produces more time. People always say, “I wish I had more time.” These machines make more time for these executives. About 75% of all corporate jets are actually occupied by middle management. The owners of these jets are always at work, even when they’re on vacation. A corporate jet gets them around, and helps to maximise their day. The airplanes are of high quality, but that’s typically not our clients’ chief concern; they’re using the airplanes as business tools.
If someone is chartering corporate aircraft 150 hours a year or more, we’d advise that they buy a plane. It cuts down on time spent travelling to the airport, getting through security, waiting for baggage, and so on. You would save an average of five hours per trip by flying on a private jet. If someone is flying 150 hours a year, they’d save 33 business days, which is a lot of time in a corporate executive’s life.
What principles is your showroom based on?
Environment, technology and data. We’ve formulated something that’s a cross between the three places that our clients spend most of their time in – their airplane, home and office. They’re spending approximately 90% of their time in any of those places, so they need to feel comfortable, like they’re in their usual environment.
Everything is focused on technology nowadays, but it needs to be educational. The data that is fed into our technology is important, and our sales staff research the market and update the results regularly. We know details about every single plane for sale.
When somebody walks in here, they see instantly that this is a different environment. They’re learning so much in a comfortable space. The client is empowered. I’m not selling anything, I’m just providing them with very laser-specific information.
How do you approach clients from across the world?
A salesperson needs to be a chameleon in order to adapt to the person that they’re talking to. In my business, it could be a CEO, wife or husband, accountant or lawyer – everybody has a different personality, and different aims. You really need to listen to what is important to them, and tailor your approach to meet their requirements.
Our expertise is in international deals. We recently had a transaction with a Russian guy who owned a Panamanian shell company, which owned an airplane
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Currencystrategies
to minimisecosts and
mitigate risksAlex Bennett, Aviation Business Specialist at Smart Currency Business, provides a run- down of the importance of minimising currency costs and mitigating risks when it comes to international payments.
Currency fluctuations in today’s volatile markets mean that currency costs can have a large impact on a business’s profitability. Given that most trans-actions in the aviation industry occur in US dollars, businesses based in other countries – like the UK – need to convert their earnings back to sterling in order to fulfil operational costs on home ground.
Financial Directors need to be able to budget for losses on currency conversions and mitigate risk wherever possible. Unfavourable exchange rates do not only diminish profits – they can have knock-on effects on the rest of the business. They can stunt growth and, in worst case scenarios, lead to significant financial losses. Even businesses like BAE and Rolls-Royce have not been immune to unfavourable currency fluctuations, which ate into their profits during sterling strength in mid-2014.
Minimising losses and mitigating risks
Despite the volatile nature of the markets, currency costs can be managed to some degree, in order to minimise losses and mitigate risk on exchanging currency. Aviation businesses need to understand the consequences of currency fluctuations, know their budget rates, split up transaction and economic risks, and identify practical solutions for minimising the currency costs that could otherwise erode profits.
A practical strategy for cutting down on currency costs is by hedging. There are different kinds of hedging strategies, but a forward contract is a popular method that allows a business to set a current rate for future use. This allows the business more control when it comes to converting currency and budgeting on the whole.
Money and time lost in ill-timed currency conversions could be better spent on running other aspects of operations, or on expanding or generating new business. Aviation businesses need to have funds transferred at the right time, and quickly. Transferring international funds at the right time is critical.
Alex Bennett is an Aviation Business Specialist at Smart Currency Business, regularly offering news and insights into currency and other general business issues for aviation businesses.
smartcurrencybusiness.com
“Even businesses like BAE and Rolls-Royce have not been immune to unfavourable currency fluctuations, which ate into their profits during sterling strength in mid-2014.”
18 | | 19
It is no secret that the world is witnessing an economic and social development boom in Africa. Analysts suggest that seven out of the top ten growth economies worldwide over the next five years are African, and that by 2015, well over 100 million Africans will populate a new middle class with, for the first time, a discretionary income. This new middle class will have heightened travel requirements, as will the business executives who are supporting the economic growth. Both groups will have a need for strengthened aviation offerings.
With an abundance of natural resources, available indications are positive for solid growth for years to come. Looking at other regions that have experienced similar growth, like China and Russia, one can only extrapolate that Africa’s business aviation sector will follow similar trends.
A changing business landscape
South Africa has traditionally led the way in business aviation on the continent, but the sector now reflects a rapidly changing landscape across Africa. In March 2014 it was reported that Nigeria had taken delivery of a higher number of new and pre-owned aircraft than South Africa during the previous twelve months, so positioning it as Africa’s leading business aviation country. It also hosts its own annual business aviation conference.
In addition, the Nigerian Government is also recognising the importance of the aviation sector to the country by supporting growth with a compre-hensive review of the legislation and regulations that surround the local industry. Egypt, Kenya, Morocco, Tanzania and Angola are also thriving markets and it is anticipated that they will develop to become major players.
Africanbusinessaviation
A unified voice
This rapid change could have advanced unchecked and resulted in a disparate business aviation fraternity. However, two years ago Tarek Ragheb – a veteran of the business aviation world – recognised the need to create a unified voice, representing the needs of business aviation across the continent. To this end, he researched, developed and launched the African Business Aviation Association (AfBAA), which aims to represent the interests of the continent’s aircraft owners, operators, and suppliers to the business aviation industry. It argues that participation from all stakeholders is crucial to achieving a unified, sustainable Pan-African business aviation community and is aiming to adapt international standards, change external perceptions and create a strong credible African Business Aviation community.
Membership has grown and now includes an impressive list of international business aviation companies alongside local African businesses that are collaborating to create a viable, long-term sector. His is an ambitious goal. Africa is made up of 54 very disparate nations, each having its own individual character, needs and approach to business. However, the Association is using several strategies to spread the good word of business aviation. It has approached the African Union to encourage development of continent-wide policies, and is using its own AfBAA symposiums to bring issues to the surface. It also aims to encourage members to build one-to-one relationships with local ministries and agencies of Civil Aviation.
Instrument for development
It is argued that business aviation can be a tool for economic and social development, and in Africa this is certainly the case. For such a large continent, travel infrastructure is lacking and executives needing to travel between destinations are not supported by hub and spoke commercial airlines. Business aviation provides a genuine transport alternative; it is becoming a necessary and essential part of the transport infrastructure. The growth of many industrial sectors, including telecoms, energy, mineral, agriculture and construction, supports the need for this commercial tool on a continent where ground transportation is far from effective. Africa’s business aviation community does not operate in isolation and it is essential that the international community understands that Africa is a dynamic continent with huge potential to develop new business in a professional manner.
The fact is that Africa cannot and will not operate in isolation from the rest of the globe, which is why the opportunities for those ready to commit for the long term are immense. Europe has historical ties to the continent, and a number of European aviation companies are already investing heavily in expansion across the continent. A new global trade route, driven by the need for land, minerals and other resources has developed, linking China, the Middle East, Africa and South America. The USA is also waking up to the value of increasing import and export activity on the continent. For those in business aviation there is no clearer message. Africa is open for business and business aviation is an essential part of the continent’s infrastructure.
Jane Stanbury is a PR specialist with Emerald Media, which has over 20 years of experience working with aviation and aerospace businesses, and associated service companies.
emeraldmedia.co.uk
“...participation from all stakeholders is crucial to achieving a unified, sustainable Pan-African business aviation community”
Jane Stanbury highlights the growing need for business aviation expansion into Africa.
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In 36 years in the insurance industry I have never seen general aviation insurance rates as low as they are now.
We have been in a softening market for the last few years and the rates are still soft. I think, going forward, that these will continue to reduce. This benefits the client, as the end user has a very competitively-priced product. However, it seems that such a low price being offered by virtually every insurer appears to be unsustainable in the long term for underwriters.
Aviation insurance – market capacity
It is a buyers’ market. Firstly, there have been almost no costly general aviation losses in recent years, meaning that underwriters have been making solid profits, despite rate decreases.
Secondly, the corporate jet market in particular is also growing in some areas – notably in Asia, Russia and the Middle East – meaning that insurers can preserve the same levels of premium income, even while cutting rates. Underwriters are still maintaining a level of overall premium increase because of aircraft replacements and/or upgrades.
This has led certain insurers who have not been involved in general aviation to realise that they have got a premium hole to fill. The result is a greater appetite for aviation in the insurance market, especially when it comes to private and corporate jets.
Staying safe– aviationinsurance
These are attractive prospects to insurers, as long as robust risk management processes are followed by the owners. Conditions like insisting on experienced good quality pilots, regular training and using a good management company are often insisted on by insurers, and can reduce the premiums that owners have to pay.
Growth in corporate jet insurance
Although many corporate jet owners and operators will have been affected by the global economic slowdown, few have been prompted to sell up and withdraw from the sector. This has crucially helped to keep the sector afloat.
While capacity is increasing across the board, the growth in demand for aviation insurance looks set to come from specific areas: Russia, parts of Asia and the Middle East represent growth markets. There is currently more demand for corporate jet insurance compared to that for private jets. Upgrades to existing aircraft can also provide a market for insurers.
There appears to be one-upmanship within the corporate jet world, where if a certain corporation runs one aircraft and their competitor upgrades to a new machine, there is a certain amount of rivalry, which means people will go out and buy new machines. Despite this, I predict that demand will stay relatively stable on a global basis.
Mark Church, Global Head of the General Aviation wing at Aon UK, outlines the state of the market, and offers guidance for aviation businesses seeking to manage risk.
Unlike the motor car market, there are no bursts of activity to increase ownership among the populous. This means that any major activity will come from within the existing market, as clients become either more cost-conscious or more aware of the fact that they have options apart from renewal invitations from their existing insurance providers.
The outlook for the aviation insurance market
Overall, participants in this market are positive. Despite rates being soft on many lines and capacity increasing, the lack of large losses means that profits remain healthy. As such, the majority of the general aviation underwriters and brokers surveyed feel positive about the contribution this book of business will make to their wider businesses in 2015.
It is not just the underwriters that are looking to grow. Many brokers also see opportunities in this business. We are finding right now that general aviation is a good source of quality business and we are trying to make sure we do it in the most efficient way, in order to benefit both new and existing clients.
Guidance for aviation businesses seeking insurance
Given the high levels of capacity in the market, now is certainly the time to shop around, and to ask questions about the finer details of any proposed policy.
I would advise any aviation business to take the time to make sure that their broker and insurer are completely aware of their overall operations, including the fit of the aircraft, crewing and training. It is important to ensure that the underwriter is informed if an aircraft is equipped with additional safety equipment, because this may enable them to offer better rates to aircraft owners.
Ultimately, the more information a business can give an insurer, the better. This will mean that they have a more educated insurer with regards to any losses they might have. On top of this, they will also get the best possible price in the market.
Mark is the Global Head of General Aviation at Aon UK, providing risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services to aviation businesses. With 36 years’ experience in the market, Mark specialises in the placement of aircraft having 50 seats or less. Aon Aerospace & Aviation’s specific areas of expertise are business jets, turbo props and helicopters. They deal with facultative and direct clients from over 100 countries worldwide.
aon.com/unitedkingdom
“I would advise any aviation business to take the time to make sure that their broker and insurer are completely aware of their overall operations”
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Architectsof charter
Vertis has a different approach to the executive jet market. Can you tell us a little more about that?
Vertis is very much a quality-focused company that pays extraordinary attention to detail, creating the best executive jet experience our clients expect. Our jet portfolio – which we market exclusively – includes one of the leading examples of an Airbus Corporate Jet that has won awards for its interior design, as well as the first Gulfstream 650 available for charter in Europe.
Vertis does much more than simply provide the jet; we offer advice about ground arrangements, locations, destinations, and ensure we know our customers’ needs, even before they do. This tailored, boutique service is incredibly popular, as it means that clients can maximize their time when they travel, which is extremely important for our client base.
Vertis Aviation is a Swiss-based executive jet company arranging bespoke charters for an elite, international client base. Vertis Partner Jeffrey Emmenis provides insight into the needs of today’s private jet passengers.
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Which areas of the market do you see growing?
Much is made of the fact that executive aviation is a valuable business tool for senior executives requiring time-efficient transport to enable them to maximise their busy travel schedule. This took a bit of a hit in the economic crisis, but is beginning to show signs of re-emerging. However, there has continued to be a need for executive jets for destinations and regions that are difficult to access – locations not well served by hub and spoke connections, as well as those where security and discretion are a prime concern.
We also see an increasing number of leisure passengers that utilise the benefits of executive aircraft as they value it for the same benefits of security, reliability, privacy and convenience.
What are the attractions of executive aviation for the leisure traveller?
Global leaders are under considerable pressure to perform and often spend less time with their families as a consequence. Holiday time is precious. Using a private jet to maximise this time has immense worth for a family who rarely spends time together. Commercial aircraft can’t always provide availability in upper class for a larger family, nor can they match the individuals’ preferences – it is also often not deemed as comfortable or convenient. However, an ultra-long range jet accommodates all these needs and often works out more cost-effective too in terms of time.
There are also numerous other reasons why these clients fly privately. Medical requirements mean that they may have to travel with special equipment, which is just not practicable on a commercial flight; security issues drive an increasing amount of passengers to the privacy of executive aircraft; nervous passengers prefer the option of knowing that the captain will route the aircraft as much as possible through still air; and smoking is increasingly a driver for travellers seeking the privilege of being able to smoke on board.
What trends are you seeing in executive jet travel?
Given the technological advances in corporate aviation, the lines are increasingly blurred between business and leisure. Many clients demand to have something close to a replica of their home entertainment system and office connectivity on board. WiFi, telephone connections, video streaming, and a selection of gaming options all feature as part of the brief. Access to this equipment enables our clients to take leisure time with their family and also stay in touch with their business.
Passengers are often very specific about their dining requirements owing to allergies, faith, or just personal preference; and this forms a large part of any inflight experience, so we work hard to get this right and have noticed that national dishes are proving increasingly popular.
Do you see business and leisure travel as competitive?
There really should be no competition between leisure and business charter, as the two sectors complement each other. It is our job, irrespective of whether we’re a broker, operator, or supplier, to provide the same service and provision to the clients, whatever their reason for travel. If there’s any competition it should be to attract the business executive flying commercial first class into the business aviation sector to ensure a continued growth of the market.
Charter is not just about the physical asset of the aircraft, it is also about the private terminals, fuel suppliers, cleaning companies, inflight caterers and travel planners. Business travel is important, but in
places such as St Vincent, the Maldives, Sion, Chambery, Ibiza and Olbia, the local economies rely on the leisure traveller. This of course has a multiplier effect into the local community, as it adds value to a region’s income.
Jeffrey Emmenis is a Partner at Vertis Aviation, Director of iFuel, Director of Sky Dragon Pacific Ltd., and the Co-Founder and President of 28 East Group.
vertisaviation.com
“Commercial aircraft can’t always provide availability in upper class for a larger family, nor can they match the individuals’ preferences – it is also often not deemed as comfortable or convenient.”
